Why the US Middle Class is in danger of extinction

By Neil Patrick

Current news reports claim the US job market is slowly improving. Is this a return to better days? Sadly no. It’s a transformation for sure, but not back to anything like we all knew 10 years or so ago.

Make no mistake about it, America's middle-class jobs have been destroyed in the wake of the 2007-8 financial collapse. The growth in new jobs reported gleefully by the government have been almost entirely low-wage jobs. And there is little reason to believe this situation can be quickly or easily reversed.

What has caused this? In the next few posts, I want to look at the factors that are behind this tragic state of affairs, dig into what’s happening and what we can do about it.

I believe there is no single cause or culprit. Instead it’s a complex cocktail of seven factors which have collided to create a perfect storm for skilled American workers. In brief these are:

• Record levels of government and personal debt 
• The rise of technology leading to ever falling marginal costs 
• Capital shifts away from labour and into non-human investments 
• The globalisation of businesses 
• Government fiscal policies 
• Demographics and education 
• Finite global resources 

But I am getting ahead. In this post, I am going to look at:

• The nature of the alleged jobs “recovery” 
• Why GDP growth isn’t making people better off
• The transference of government debt to households.

The substitution of high paid jobs by low paid jobs is beyond doubt

A recent presentation from the Federal Reserve Bank of San Francisco describes the jobs “recovery” in stark terms. The vast majority of job losses during the recession were in middle-income occupations, and they've largely been replaced by low-wage jobs since 2010:

Mid-wage occupations, made up a staggering 60% of the job losses during the recession. But mid-wage jobs have made up just 22% of the jobs gained during the recovery.

By contrast, low-wage occupations have totally dominated the recovery. They represent 58% of the job gains since 2010. "Many middle-class workers have lost their jobs and, if they have been able to secure new employment at all, find themselves earning far lower wages post-recession," the San Francisco Fed says.

Nearly 40% of the jobs gained since the recovery began - about 1.7 million - have come from three low-wage sectors: food services, retail, and employment services.

And four low-wage occupations are now the top four types of employment in the US: retail sales, cashiers, office clerks, and food preparation and servers:

The problem is compounded by the fact that industries which employ mid-wage earners, such as construction, manufacturing, insurance, real estate and IT, have either stagnated or grown too slowly to recover their pre-recession losses.

Worse again, budget cuts to federal and state government have eliminated a vast swathe of mid- and higher-wage jobs. And a separate chunk of middle-wage jobs including carpenters, plumbers, plasterers and electricians are still waiting for the U.S. housing market to recover.

The growth of wealth inequality is a problem for all, not just the poorest

This is creating a polarised workforce in the United States. Over the past decade, both high- and low-wage jobs have been growing. But jobs in the middle continue to shrink. Mid-wage jobs suffered a major drop after 2001, largely stagnated during the 2000s, and have now declined even further in the most recent downturn.

Economists have been debating the causes of this divergence. Harvard’s Lawrence Katz and Claudia Goldin, argue that new technologies and machines are now displacing mid-wage jobs.

I believe this is a correct analysis as I talked about here. But it’s not the full story. Some others, such as Larry Mishel of the Economic Policy Institute, point to political factors, from the decline of labor unions to trade liberalization to the dwindling minimum wage. This is a factor too, but again it’s only an ingredient in the mix, not the full disastrous recipe.

But neither of these arguments discuss the lead weight which is pulling the whole economy down. And that weight is government debt. That debt puts massive upward pressure on tax, demands endless quantitative easing (devaluation of the dollar to you and me) and limits government spending – the type of spending which would create more jobs in the public sector.

It seems logical to me that there’s no single simple explanation of what’s going on. It’s multi-factorial which makes it complex to understand and remedy both at a national and individual level.

But if the trend continues, it will amplify something which is already a big problem in the United Sates: income inequality. Not to mention the destruction of the hopes and aspirations of a huge swathe of American society. And needless to say, that’s a bad thing…

GDP growth and household incomes have become separated

For the first time in US history, economic growth is no longer driving income improvements at the household level.

Traditionally, improvements in GDP have directly resulted in increased income and prosperity for citizens. In the US, this link has broken. US median household income is now at a lower level than it was in 1999. In fact even though US GDP has been on the rise since 2009, household income has been falling since 2008:

Here we see the evidence of how as technology continues to increase productivity and reduce marginal costs, so we have GDP growth but no wealth creation except for those who are in the boardrooms and/or major equity owners.

To look at it in its simplest terms, businesses can create higher returns with less human labour inputs than ever before. The first industrial revolution substituted human muscle power with mechanical devices. The second industrial revolution transformed transport and communications. And the third industrial revolution is replacing human cognitive tasks with artificial intelligence.

So until recently, technological improvements have only really affected those who sold their manual capacity to earn a living. Today’s technology is reducing the workforce needed for tasks which required the application of professional and mental skills too. But there’s another problem; if we are selling our manual labour, we need to do nothing to create our commodity. Our bodies are there to be applied to work whenever we want. Little or no training is needed.

But jobs requiring the application of skill and knowledge are different. The acquisition of these skills can take years. Sometime decades. And if no-one wants them anymore, we have a stark choice – dump them and start again or try and compete for unskilled work.

So we have an American middle class with skills that fewer and fewer people want or need to pay for. The keys to the acquisition of wealth are no longer the sale of our labour and skill. They are the ownership of income generating assets. And thanks to booming stockmarkets, owning assets has made most of the wealthy even wealthier over the last few years.

This is the reality of the polarisation of America’s workforce. Greater wealth acquisition by those at the top, those who own assets, but falling income levels for everyone else… not just the poorest, but the vast majority of Americans.

Needless to say, this is also a bad thing…

The burden of government debt is being passed to households

Despite multiple deficit-reduction deals during the past three years, the US national debt is projected to swell to 100 percent of the economy by 2038, due primarily to the enormous cost of caring for an aging society.

Whilst WW2 exceeded the current peak of government debt, the end of WW2 and the global restructuring that arose from its ashes is a very different scenario to that we face today. Post 1945 saw the US emerge as the dominant global super power. It’s huge manufacturing capacity, abundant natural resources and global markets created the wealthiest society on the planet:

But post 1980 has seen the failure of that economic model as the production of cheaper goods of equivalent or even higher quality started to materialize in low wage economies.

Making matters worse, tax cuts for the vast majority of Americans were made permanent during last year's fiscal cliff showdown. If the tax cuts had been allowed to expire, projections showed the debt dropping to 52 percent of GDP during the next 25 years.

In effect, huge government debts are being allowed to accumulate unchecked. But sooner or later these debts will be passed to individual citizens rich and poor through the giant levers of fiscal policy.

And you guessed it; this is also a bad thing…

So these three points define the problem: 

• Millions of jobs for skilled workers in the middle income bracket have simply vanished. 
• Economic growth has become of value only to the asset owning classes. 
• Government debt will continue to be passed onto citizens. 

This isn’t a problem which can be solved by the traditional tools of government. If you want to place your faith there, that’s your prerogative and I hope you are right. My take is that we all need to come up with our own personal solution. It might just be the biggest test of our lives…

I’ll be back with more on this soon.

Detroit: a vision of the future?

By Neil Patrick

Not many people know that in the 1950’s Detroit was the fourth largest city in the US.

But almost everyone knows that the city is now bankrupt.

The mainstream media is focused on the crazy legal merry go round that has ensued in the wake of this collapse.

But a city is not really an entity on its own, although bureaucrats may find it more convenient to organize it that way. A city is the sum of all the people and lives it contains. And in the case of Detroit, these lives have been wrecked in varying degrees, not only directly by the bankruptcy, but also by the massive collapse of the government services which resulted from it.

I wonder if in the late 20th century, we had presented people with the reality of the condition of Detroit today, anyone would have taken it seriously? I rather suspect that the majority view would be something like, ‘Oh, that could never happen here’.

But it has and to my mind it presents a terrifying premonition of what the future might look like for many other cities in the US and other western countries. The UK already has what I would call it’s own ‘mini-Detroits’.

The bottom line is that if you worked or are working for any Detroit public organisation, you are unlikely to ever see more than a tiny fraction of your pension rights actually materialize.

But this isn’t just an issue in Detroit.

You may be surprised to discover that 61 other cities in the US have a gap of more than $217bn in unfunded pension liabilities. That's right $217 billion!

And I’d like someone to tell us where that money is going to be found.

You might be tempted to think along the lines of, ‘Oh yes , my city is different, because…’ (add your excuse(s) of choice here). But is it really? Really?

The collapse of Detroit is multi-faceted. Of course it all began with the decline in the fortunes of the US car manufacturing giants based there. And there was corruption, and racial tensions, and a vicious circle of increasing government spending to try and prop things up, delivering worse and worse results, leading to yet more spending. And an exodus of the middle classes, in other words, the ones who contributed the biggest slice of the revenues that government uses to pay for things.

What can we do to protect ourselves from this type of risk to our lives? Well there are three groups of people who are not only unscathed, they are actually doing rather well in Detroit right now.

That’s urban redevelopment bosses, politicians. And lawyers.

Choose your poison.

And if you’re not scared enough already, just watch this to see the full HD version of a really scary movie about the tragedy of Detroit courtesy of Stefan Molyneux at Freedomainradio.com

The invisible threat to all our futures

By Neil Patrick

I started this blog because I am convinced we babyboomers are in a period of unprecedented danger. And not only us, those that depend on us too. Like our kids. And our parents. And because no-one seemed to have any idea what to do about it.

Just about everything we grew up believing about jobs and careers and how our lives would unfold has been swept away in a perfect storm of recession, global economic power shifts, financial crisis, government failure and transformation of the workplace.

Our education in the 1960’s and 70’s was a reflection of a different world. This was a world in which the US and the western economies still held sway. And the education system was geared to providing a workforce which fed that economic machine with the human labour and skills it needed.

Only scraps remain of that world. Just look at Detroit and any other examples of the old world which are now little more than derelict monuments to a bygone era.

As a group, we are extremely poorly equipped to respond to changes of this magnitude. If you have a job, you may consider that all this is irrelevant to you. You may consider yourself lucky. In some ways you are. But do you genuinely believe you will still have a job in five or ten years’ time?

Whatever your answer to the question, the fact is you are almost certainly going to need one.

Today, we have governments that still do not accept that this collapse is irreversible. They cling to electoral manifestos which regardless of policy or position on the political spectrum, argue that their policies are the right ones to restore the situation to something resembling what we all grew up in.

Well, I believe that’s all hogwash. It is never coming back.

The reason politicians tell us that they know what to do to restore the old world order, is simply because saying anything else would make them unelectable.

Moreover, there is a cosy alliance in place between government and big business which maintains a status quo and is a perfect mechanism for protecting the personal interests of the political and business elites.

We are actually partly to blame for this. We abdicated our responsibilities wholesale to our governments many years ago. We put our faith and trust in them. You want education for your kids? Fine we’ll provide that. You want defence against real or imagined enemies? Fine, we’ll protect you. You want doctors and hospitals? No problem. Free education for your kids? Check. You want care for the elderly, and roads and railways and waste removal and a justice system and food hygene and pensions? Don’t worry, we give you all of these. The list is endless.

And that’s the problem. Because every government has attempted to provide all these things to ensure it retains or attains power, we have asked for and they have accepted a magnitude of tasks which they are almost bound to fail to deliver. Not only that, we have to pay for it.

So on the one hand we have an almost endless and growing list of government service obligations to citizens. On the other, we have to figure out how we can pay for this. And yup, you’ve guessed it. We can’t. The money (or more specifically, the credit) has run out. You can only borrow and tax so much before you reach breaking point.

And if your economy isn’t growing, your tax receipts are falling. But you’ve still got to pay for all those promises you made to the electorate.

That’s why the promise has become impossible for governments to keep. The promise was predicated on the belief that western business and economic growth could continue to outpace the rest of the world.

Western governments have dug themselves so deeply into debt that no amount of economic improvement will get us back to where we all want to be.

Yesterday I was sent a viewpoint from someone who I won’t name, but who has had many dealings with the political elites, which I think sums up perfectly the hidden nature of the forces at work in government – and underpins my belief of one of the key reasons we cannot expect to see significant change if we look to politicians (of ANY party) to be our saviours.

The tone is heavily ironic and talks about the UK system, but is broadly relevant to the governments of all western economies, so read with that in mind.

Why do we need a new political philosophy when we already have a perfectly good one? The trouble is that people don’t understand it so let me explain.

We have a democracy. This means that we choose from among a small cadre of hereditary leaders who select a head from amongst themselves. They are in a unique position to do this: they have been trained from secondary school (usually but not only Eton) to understand their entitlement. They are then trained at university (usually Oxford or Cambridge) how to exercise it, for the most part on Politics, Philosophy and Economics (PPE) courses.

They understand as none of the rest of us do that political leadership has nothing to do with purpose other than itself and nothing to do with us. They are not interested and, more to the point, experience has taught them that for a relatively small outlay in highly skilled lying we can be conned into anything. And if the worst comes to the worse they can find scapegoats for us to blame for any consequences that fall upon us. The workshy are blamed for unemployment, the homeless for shortage of housing, the poor for poverty, immigrants for almost everything.

They are pragmatists above all. They recognise that real power in the world lies with money and globally organised money in particular. So they look after the interests of “business” which really means very big business and finance. In return business looks after them. The price is very high: the lies with which to justify the upward distribution of power and wealth become increasingly transparent but it is not a real problem. We must after all select from among their number if we can be bothered to engage in the process at all.

So there you have it. A perfect system already exists. To oppose it creates the danger of instability which makes you a terrorist. Relax and enjoy.

You may think that what I have said so far is unduly cynical and pessimistic nonsense. You may even think it smacks of paranoia. After all I have presented no facts to support my opinion. Worse I have presented no practical alternative. Without facts and a real alternative, how plausible is my argument?

Those criticisms are all fair and reasonable. And that’s why I’ll be returning with more on this topic over the coming weeks.

For now though, I’ll just leave you with this question. Do you sincerely believe your government, or its opponents, really have a realistic chance of delivering anything resembling the sort of lifestyle we all grew up expecting over the next 20-40 years?

Why it’s a lie that UK employment is at 'record high'

By Neil Patrick

It's spin time again folks!

UK government ministers and some parts of the press have seized upon the latest UK Office for National Statistics employment figures showing that the number of people in work in the UK has increased by 155,000 to its "highest level since records began in 1971".

Sounds good doesn't it? But sadly this isn't quite such good news as it appears. Yup, it’s a true statistic, but it’s the wrong statistic to use. In fact, it’s one of the simplest deceptions in the book of statistical trickery.

In this case, it capitalises on the fact that UK population has grown massively by over 400,000 in just the last year alone.

So when we look at the official employment rate, i.e. the percentage measure of the number of people in paid work, this is still a whopping 2% off where it was in 2008 before the recession hit, falling to 71.7% from over 73%.

Sure 2% doesn’t sound much, but in real life, it means that at least half a million more people would need to get jobs before the employment rate returns to its pre-recession peak. The number of people in work is indeed at the highest level ever - but so too is the number of people in the UK.

The absolute numbers of people in work in the UK have been pushed up by population growth and immigration. The UK's population soared by 419,900 to 63.7 million between between June 2011 and June 2012.

Martin Beck, UK economist at Capital Economics said: "The government would prefer to use employment levels rather than percentages but… the rate is still about 2% below 2008. It's mainly due to population growth and a bit of migration from the European Union."

So the ‘true’ figure, the unemployment rate, measuring the amount of people who are actively seeking work, remains at 7.7% and has not fallen below this level since mid-2009.

Graeme Leach, chief economist of the Institute for Directors, said the ‘recovery’ was "job-lite".

I’d go further; the ‘recovery’ if it can ever be called such, is currently creating mainly low paid jobs, many of which are being taken up by young immigrants to the UK.

Consequently, wage growth still remains weak - total pay for employees rose by just 0.7% in the year to August 2013. And this remained below the Consumer Price Index (CPI) rate of inflation of 2.7%, so wages are actually getting lower in real terms.

Employment minister Esther McVey apparently doesn’t agree with me, saying: "I think this is very positive news, because that's more than a million people who have got jobs since the general election." Hmmm...

So as usual, the employment figures are getting spun by the government. Once you strip away the thin façade of misused statistics, there really is no UK jobs recovery, let alone any growth in incomes. And if ministers are really looking at absolute job numbers as their key progress indicator, then they are not only misleading us, they are deceiving themselves. I’m not sure which is worse.

The good news is we’re living longer. The bad news is we can’t afford it.

Here's a recent article from the Kansas City Star. It describes perfectly why I set up this blog. Baby boomers are facing the toughest test of their lives. And because all our hopes and expectations were set in an era when our futures looked entirely different, our education, aspirations and attitudes were founded on a whole set of assumptions which have failed to materialize. 

My question is what are we going to do about it? I sure as hell won't put my faith in the idea that anyone in government will come up with effective solutions, so we have to look after ourselves.
What do you think?

By Scott Canon and Steve Kraske


From the age of 23, when she was the first female steelworker at Butler Manufacturing, Diana Arends labored to carve out a solid middle-class existence.

Elbow grease and grit moved her steadily up a union hierarchy until, as a tool-and-die maker at age 59, she sat atop the union pay scale at Ball Corp.’s beverage-can plant in Kansas City.

Then came the crash of ’08, the closing of the plant and the start of hard times that look to define the remaining decades of her life - and tens of millions of baby boomers like her.

She’s worked just one year of the five since trouble gut-punched a generation just as a decent retirement seemed within reach. Her 401(k), the tax-sheltered account she’d been stocking all those years, was suddenly cut in half by the stock market dive and it hasn’t rebounded to where it should. By age 62, she was forced to tap into Social Security early. That meant that forevermore, her monthly check would be $600 lighter.

Now 64, she still looks for work that puts her skills to use and strikes out, concluding that bosses have little interest in a leftover from a manufacturing age. She lives with her daughter and granddaughter in a Lee’s Summit home that no longer has cable TV or a landline phone, that chills in the winter and toasts in August. The three will mine this newspaper heavily for coupons.

“I expected to be able to retire, take a camping trip now and then,” Arends said. “I didn’t expect to still be job hunting to supplement my income.”

A generation once warned not to trust anyone over 30, and that now has kids with kids, wonders if it can believe in its own old age. An implied bargain that promised security after decades in the workaday world looks, if not busted, mighty rickety.

Look now, five years after the fall, and the landscape looks uneasy and unfamiliar.

“There’s a whole new world out there,” said Ralph Monaco, a Kansas Citian and baby boomer.

Too many nest eggs got dashed in the 2008 cratering of stocks and home equity. Sure, things have bounced back … slowly. But half a decade of what should have marked prime, late-career earning years - from both investments and wages - all but evaporated.

Baby boomers were more likely to hang onto their jobs through the Great Recession than younger workers. Still, for those older workers who got laid off, the pink slips were especially devastating - forcing early and painful dips into retirement funds.

The still-employed also got whacked. Many saw company contributions to pensions, or matches to retirement accounts, evaporate. Wages stagnated or shrunk - at just the time in their careers that folks might expect to finally make top dollar.

And the lousy job market for young workers meant Junior’s inability to rise above barista extended his reliance on Mom and Dad deeper into his 20s - and their dotage.

“If you look at people 46 to 64, it used to be that that was the prime of your life, not only in terms of contentment and satisfaction, but also in income,” said Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research.

But not this generation.

“The boomers,” she said, “will be the first generation to do worse in their old age than their parents or grandparents.”

Shaky footing

Even before the crash, signs crept up that retirement years might not be so golden, or even reachable. Pensions increasingly lacked the full funding needed to guarantee the promised monthly checks. Although the federal government promises to backstop many of those pension funds, you didn’t need to be Chicken Little to imagine more collapsing accounts than Uncle Sam could field.

Meanwhile, fewer employers felt a need to tempt workers with the promise of a pension. And the Pepsi Generation that never tasted the bitterness of the Great Depression did relatively little to save for the rainy days of retirement.

In the still go-go days of 2007, the Center for Retirement Research at Boston College calculated that 44 percent of Americans nearing retirement were at risk of falling significantly short of their current lifestyles if they tried retiring at age 65.

Then in 2008, ordinary Americans began hearing about mortgage derivatives and other financial gymnastics. Suddenly, their home equity morphed into mortgage debt, their boss stopped pension contributions and 401(k) matches, or maybe their services weren’t even needed anymore.

In an eye blink, a generation’s retirement prospects turned from sketchy to crummy. By 2010, the number at risk of being unable to retire at age 65 had jerked up to 53 percent.

“The boomers are going into retirement in terrible shape,” said David Cay Johnston, author of “The Fine Print: How Big Companies use ‘Plain English’ to Rob You Blind.”

He’s studied pensions and America’s retirement systems for decades and concluded the Great Recession not only buckled boomers’ knees, it widened the chasm between the country’s haves and have-nots.

The laid-off and desperate found themselves forced to dip into stock-based savings when their values were particularly low. They were forced to cash out at the worst possible time. Those buying up those bargains — the wealthy — were the only people who had cash to spare. And it’s the rich who’ve profited from the subsequent rebound.

More work, if any

Meanwhile, a transforming economy of mergers and new-found efficiencies meant more workers got tossed to the side. That can prove daunting enough at any point in a career, but it’s especially tough for older workers.

“At this point in your life, you’re beyond the mountain climbing, beyond the time to make a name for yourself,” said Janice Lambert of Overland Park.

She’s 59 and laid off. Her employer merged with another company, was sold again and sold a third time - at which point it no longer had room for her.

She talks about feeling like a puppet, with distant financial forces tugging the strings that toss her future this way and that. To her, it feels like the puppet masters responsible for the 2008 financial crisis only got richer.

“It wasn’t supposed to be this way,” she said.

If she finds a decent job, she’ll likely stay in the workforce untold extra years to make up for lost time.

Baby boomers - a diverse demographic of nearly 80 million born between roughly 1946 and 1962 - peer into a time after work and see, well, more work. Assuming the workplace has room for folks who once thought of technology as a slide rule (look it up, kids).

The Bureau of Labor Statistics predicts that between 2008 and 2018, the number of middle-aged folks in the American workforce will jump by 33 percent. The number of workers 65 and older is expected to grow by almost 80 percent.

Little in reserve

Making it all sting a little more is that, as a generation, it’s not been a particularly frugal bunch.

Relative to their salaries and their lives filled with SUVs, 200-channel TV, beach vacations, boats and Botox, they’ve saved very little. On average, baby boomers waited until they reached age 35 before they even started setting aside money for retirement. By one estimate, even if they transform all their savings into annuities and max out reverse home mortgages, half the generation will see a marked drop in standard of living during retirement.

“We’ve lived beyond our means. We’ve used the equity in our homes for the last decade as cash machines,” said Daryl Eckman, a 59-year-old certified financial planner in Prairie Village. “We feel we have to live a certain way. … We feel we have to drive a certain car, put up appearances.”

If a friend his age has money, chances are Eckman is managing it. Their ledger, he said, usually reflects that even those with six-figure incomes live on the edge.

“The floor drops out on them very quickly,” he said. “They look to the government. They look to whatever the system will allow.”

Monaco is a 57-year-old Kansas City lawyer who feels he has little margin for error in his finances. He has diabetes and high blood pressure. He’s raised two daughters, and his retirement account won’t allow him to stop working anytime soon. He’ll keep working, he figures, as long as he’s able. If he’s able.

“I don’t see an opportunity for me to ever get out of the workforce,” Monaco said.

That necessity is, he said, partly the result of his own choices. He indulged his two daughters in childhood and insisted on paying for their educations to dodge student debt. He’s lived more comfortably, and less frugally, than his parents’ generation - a group sobered by the hard lessons of the Great Depression.

“I’ve got to pay for keeping up with the Joneses,” Monaco said. “We all seem to have to keep a profile, which is unnatural and unreasonable.”

If you’re not among the gilded 1 percent, it seems, there’s little reason to quit your job just because you’ve celebrated a 65th or 67th or 70th birthday.

Most Americans now calculate they’ll need a paycheck - either part-time or full-time - beyond the time when they can expect full Social Security retirement. (Depending on the year they were born, that falls between 65 and 10 months and 67.) A third will work to stay active. The rest will chase a buck out of necessity.

Longer lives, smaller funds

The good news is we’re living longer. The bad news is we can’t afford it.

This is where history reminds us that Social Security’s original retirement age was set when barely half of those who reached adulthood could expect to live to 65. Now, more than three-fourths cross that line. In 1950, a working man lived an average of seven years after retiring. A half-century later, a similar guy could expect twice as many years of elderly leisure.

In 1995, the average expected retirement age was 60. By 2011, it had been pushed back to 67. But life expectancy isn’t growing that fast. The difference in life expectancy between 1995 and 2011 is less than three years, not the full seven years that retirement got put off.

A Senate study in 2012 identified a $6.6 trillion retirement deficit - the difference between what people should have saved to maintain their lifestyles and the far smaller amount they actually set aside.

The fault is not entirely their own. They've seen the stock market cave in with some regularity - 1987, 2001, 2008, each time more painfully close to baby boomer retirement with less time to make up the losses. And each time making work harder to come by for the gray-haired workers.

“Our parents had mostly paid off their homes, had some pension or defined benefit. And Medicare covered most of their health care costs. None of those are true today,” said Dean Baker, the co-director of the Center for Economic and Policy Research.

“People still have pensions, but they’re fewer and dwindling rapidly,” he said. “Health care expenses … have exploded.”

His think-tank recently calculated the median wealth - savings, home equity, the works - of people between the ages of 55 and 64 at $170,000. That was about the same as the median home value.

“They literally have nothing left beyond the value of their homes. That means the only thing they have to support them is Social Security,” Baker said. “You’d like to think that people who spent their lives working would have some comfort in retirement.

“That’s going to be a questionable proposition.”

In that way, the Great Recession undercut so many boomers’ sense that they’d be rewarded for long years of work with a decade or more of secure retirement.

“A lot of baby boomers like me thought ... if we worked hard, got our homes paid off, have a little nest egg, we’d probably be doing more travel and enjoying it and spending more time doing community service,” said Tim Pickell, a 60-year-old attorney in Prairie Village.

Like a lot of people, he thought wrong. Much of a family inheritance was wiped out - the stock market tumble took a chunk, so did a need to make up for a slowed-down income stream from his law practice. That set off serious recalculations.

“The reality is,” Pickell said, “I have a lot of hard work to do.”

Arends, the once-successful steelworker, dreads as much as anything the anxiety of endlessly pinching pennies.

Her pension and badly depleted retirement savings must keep a household of three afloat. Indefinitely. She’d like to go to the movies, but rents videos from Redbox instead. She’d like to eat out, but scours a discount grocery for sales. She’d like to spoil her granddaughter, but rarely can.

“I worked hard. I’d like to work more,” she said. “But this is where I am.”


Read more here: http://www.kansascity.com/2013/09/28/4516374/great-recession-pummeled-baby.html#storylink=cpy

USA: The jobs crisis carries on and our ‘leaders’ have no solutions

By Neil Patrick

I get really cross when I read pronouncements from regulators and bankers about the recession. The members of both groups are securely cosseted from actually feeling any of the real effects themselves. And each blames the other for the crisis. Regulators blame poor bank governance, bankers cite excessive and disruptive government interventions.

I believe both are right actually. It’s not rocket science to work out that these are not mutually exclusive. One does not preclude the other.

It’s actually a rather cosy mutual support mechanism, enabling each to pass responsibility to the other, whilst happily continuing to pursue their own self-interest.

But we need to look forwards not just backwards to restore growth to the US.

On Sunday, the former Federal Reserve Vice Chair, Roger Ferguson admitted the US economy is still suffering "lingering effects" from the financial crisis. Growth he said was too "modest" to bring down unemployment or increase labor force participation at a satisfactory pace.

(Well said Roger; we hadn’t actually noticed that).


We need to remind you who the bad people are (and that’s not us).

Of course, Ferguson did not offer any monetary or fiscal policy prescriptions for accelerating economic growth as he accepted the National Association for Business Economics' annual Adam Smith Award. Instead, he focused on the need to restore public trust in the financial sector and to improve corporate governance.

(That’s right Roger, this recession has nothing to do with out of control government debt, it’s those greedy heartless bankers we need to blame).

Ferguson has been mentioned as a possible successor to Ben Bernanke. Currently president and CEO of financial services firm TIAA-CREF, Ferguson told the NABE's annual meeting "we have continued on a path of modest growth in the U.S., and while we all would wish for more, it is a far better scenario than we might have imagined five years ago today."

(That’s really great news Roger, thanks).


Of course we cannot risk upsetting the (massively overvalued) equities markets…

He also said the "still-modest growth" pace - 2.5% in the second quarter but less than 2% so far in the third quarter - should not be viewed as acceptable. He said, “it serves as a reminder that today, five years on from some of the darkest days of the financial crisis, we continue to deal with its lingering effects."

"The unemployment rate remains stubbornly high and labor force participation low. The markets have been volatile in the face of concerns about the Fed's tapering plans."


…much better to continue devaluing the dollar

Although he mentioned concerns about the Fed "tapering" its large-scale asset purchases, Ferguson did not say how he thinks the Fed should proceed in scaling back its $85 billion a month in "quantitative easing" or how monetary policy could be applied to stimulate growth.

Rather, he said "it would be wise to turn our collective energies to ensuring that we never have to endure a crisis like that again."

(That’s right Roger, we need lots more regulation to ensure we only get the right sort of growth).


And the solution is…lots more regulation

Although reams of financial service regulations have been implemented in connection with the Dodd-Franks Act, with more to come, Ferguson said "they are not enough."

(No that’s right Roger, our financial institutions need lots more government bureaucracy to make sure they cannot ever again become a burden to the government but only fill the government coffers with lots of ‘good’ money).

"It's equally important to further improve corporate governance at financial firms," he said. "We need stronger and more effective corporate governance approaches, particularly at the institutions that have been deemed systemically important.

The need for better "governance" in the financial services industry is underscored by what he called "a widespread lack of trust" in financial firms and by Americans' "angst" over their retirement prospects.

(Erm…isn’t that the same lack of trust that people have for politicians and regulators Roger?)

Ferguson said "it's vital that Americans regain trust in the financial services industry, because the industry is simply too important to our economy and our global competitiveness to be looked on so warily by so many people."

In saying "weak corporate governance" lay at the root of the financial crisis, Ferguson was referring to, among other things, commercial banks' increased "involvement in risky trading activities; growth in securitized credit; increased leverage; failure of banks to manage financial risks; inadequate capital buffers, and a misplaced reliance on complex math and credit ratings in assessing risk."

(I accept these are huge failings, but if you constantly point them out to the media, how will that help restore the much needed trust you talk about?).


We’ll tell you how to run your business

Ferguson highlighted recommendations of the Group of 30, an international forum of public- and private-sector financial leaders of which he is a member:

"First, we urge boards to take a long-term view that encourages long-term value creation in the interest of shareholders ... "Second, we urge management to model the right kind of behavior and to support a culture that promotes long-term thinking, discipline, sound risk management, and accountability ...

"Third, we urge regulators and supervisors to take a broader view of their roles, one that includes understanding the overall business, strategy, people, and culture of the firms they oversee ...

(Well said Roger…even though this is the only new and constructive thing I’ve heard you say).

"And finally, we urge long-term shareholders to use their influence to keep companies honest about performance and focused on improving governance."


I apologise for my mockery of Mr Ferguson,but…

Actually I am being hard on Mr Ferguson here. But he's more than big enough to take it I think and he's the one winning the awards not me. I think most of the things he describes are good aspirations. But great vision is one thing, effective execution is totally another. And little of the above actually helps solve the problem that is slowly killing the US every day it continues.

We need at least as much focus on driving an equitable recovery and household income growth as we do on looking backwards and learning the lessons of the past. And that means a really constructive dialogue between government and business, not just a witch hunt and lots more regulators and rules.

195,000 new jobs in the US. But is this good news or spin?

By Neil Patrick

Last week, like many, I was keenly awaiting the announcement of the June US non-farm employment figures on Friday. And the headline figures were not too disappointing.

June 2013 non-farm private jobs growth came in at 195,000. The market expected 165,000. And understandably, the headlines were generally more positive than negative. The Wall Street Journal headline ran:

Job Gains Show Staying Power: Recovery's Gathering Momentum Drives Treasury Yields to a Two-Year High

USA Today ran with: Obama team: Recovery continuing

Whilst in Europe, the BBC reported (in its typical ‘yes, but’ fashion): Positive US jobs numbers add to rate rise speculation.

Commentators were generally upbeat too. Mark Zandi, chief economist of Moody’s Analytics said:

The job market continues to gracefully navigate through the strongly blowing fiscal headwinds. Health Care Reform does not appear to be significantly hampering job growth, at least not so far. Job gains are broad based across industries and businesses of all sizes.

Carlos A. Rodriguez, president and chief executive officer of ADP commented:

During the month of June, the U.S. private sector added 188,000 jobs, driven by gains across all sizes of businesses, and with small companies showing the largest overall monthly increase. Most notably, the goods-producing sector added 27,000 jobs in June, a marked improvement over the decline the previous month.

ADP’s analysis in summary was:

• Small and medium sized business created the majority of the jobs;
• Manufacturing and goods producing industries are not adding much to jobs growth;
• Most all, the jobs growth came from the service sector. The three month average of jobs gains improved – the rate of growth is accelerating. This month reverses the 4 month “less good” trend.
• May’s report (last month), which reported job gains of 135,000, was revised to 134,000 jobs. 

But I was less convinced than these expert commentators. Why? Because the US is still deeply mired a fiscal crisis that shows no signs of abating. Real economic growth remains elusive. Government debt is at unsustainable levels. The US and all the major world economies are more interdependent than at any time in history. Instability in the Eurozone remains an unresolved threat to the global economy and dangerous bubbles are continuing to inflate in all sorts of areas as diverse as commodities and student debt.

Equities markets continue to remain buoyant. But this is another bubble, supported by a flight from risk in the previously danger free bonds markets. So in my view equities prices are illusionary right now and do not represent the real prospects of the businesses concerned.

Of course, employment data is a rear view indicator. But looking at the ADP data, the overall trend for the year on year rate of growth has been literally flat since mid-2010. The year on year jobs growth has been in a tight range of 1.6% to 1.7% for the last 6 months and in June the jobs growth was no different at 1.7%.

So I decided to look behind the headlines and dig deeper into the data. I present this here so you can judge for yourself if you think such optimism is justified or not.

1. Non-seasonally adjusted non-farm payrolls rose 856,000 – better than last year, but 4 years showed better growth in the last 10 years.

2. There has been NO change in the number of unemployed

The BLS reported U-3 (headline) unemployment was unchanged at 7.6% whilst the U-6 “all in” unemployment rate (including those working part time who want a full time job) jumped up 0.5% to 14.5%.

BLS U-3 Headline Unemployment (red line, left axis), U-6 All In Unemployment (blue line, left axis), and Median Duration of Unemployment (green line, right axis)

3. Employment levels have been flat for three and a half years and the changes reported as signs of recovery are truly insignificant

Econintersect measures employment supply slack using the BLS unadjusted data base, shown in the graph below. Here you can see how insignificant the reported improvements really are (and how there has been little real change in the level of employment since the recession 'ended' ):

4. The total hours worked has flat lined since the middle of 2010.

Percent Change Year-over-Year Non-Farm Private Weekly Hours Worked

5. Sustainable long term jobs have contracted whilst short term floating jobs have increased.

•  Average hours worked was unchanged at 34.5. A falling number does not indicate an expanding economy. This number has been in a narrow channel several months.
• Government employment contracted 7,000 with the Federal Government down 7,000, state governments down 15,000 and local governments up 13,000.
• The big contributors to employment growth this month were accommodation and food (57K), retail trade (37K) and administrative including temp services (36K).
•  The big headwinds this month was state government jobs (-13K) and education (-11K)
• Manufacturing was down 6,000, while construction was up 13,000.
• The unemployment rate for people between 20 and 24 decreased from 13.2% to 13.5%. This number is produced by survey and is very volatile – and this month’s degradation only reversed last month’s improvement.

6. Real earnings have stagnated at the lowest level for more than decade.

In June, average hourly earnings rose just ten cents to $24.01.

Private Employment: Average Hourly Earnings

So there you have what I consider to be the real numbers behind the headlines that show just how much the US jobs market remains stuck in an increasingly dangerous and precarious position. More than anyone I want to be able to report good news, but my conclusion is that we don’t really have any just yet and we should all plan accordingly.

UK: One million young unemployed? No, that’s just the tip of iceberg…

By Neil Patrick

Whilst this blog is focussed on job and career matters for mature professionals, we all know that the global jobs crisis is also hitting young people exceptionally hard. And in the UK, still-inflated house prices and cautious bank lending means many remain living at home with their parents sometimes to 30 years of age or more.

But this isn't just a tragedy for the young. Unemployment and underemployment amongst the young has a profound impact on their parents' financial sitautions too.

The average age of first-time UK house buyers is now 35 years old, according to a survey by Post Office Mortgages. This compares to 28 ten years ago, and 30 five years ago.

In the early 1960s, the average age was 24.

The survey also found that half of all prospective first-time buyers believe that it will take them ten years just to save enough to raise the deposit to get on the property ladder.

With the average price of a first-time property at £137,500, the average deposit required is £27,500.

Now I actually think that this is not such a bad thing. Irresponsible lending and borrowing particularly in the US and UK housing markets are one of the major root causes of today’s western economic woes. So a sizeable deposit requirement and the self-discipline and sacrifices required to achieve this would seem to be a good thing, right?

Well not exactly. You see, whilst it might be tempting to imagine young people working and saving hard and finally reaching a position where they can finally afford that deposit down payment, that’s not what is happening in reality.

In the vast majority of cases, the deposit isn’t found in this way. So where’s is it coming from? Family. The bank of Mum and Dad - if you are lucky enough to have parents with £30,000 or so just sitting around with nothing better to do. 

So if you are one of the lucky few, this deposit hurdle isn’t a problem at all. And in fact, if you can persuade your parents that it’s just impossible for you to save so much on your income, a big deposit is arguably even less of a hurdle than a small one.

Ironically, this large deposit requirement creates a new generation of young home buyers with absolutely no personal stake in their home investment! And with interest rates so low, the monthly payments are very easy - for now…

And how many do you think have budgeted for a possible interest rate rise on their repayments…I don’t know either, but I’d be willing to take a bet…

Once we see any sort of upward movement of interest rates, then everything will start to look very wobbly.

So this is the uptown story.

Moving downtown, there’s a whole different story playing out.

The recent National Institute for Economic and Social Research (NIESR) study shows the jobs situation for 16 to 24-year-olds is much worse than even the raw unemployment figures of 979,000 suggest.

The lack of job opportunities for young people during the downturn is brought into stark relief when we consider the fact that nearly a third of those counted as being in work are actually “underemployed”, according to NIESR.

So whilst nearly a million are completely out of work, many times more than this are not getting as many hours work as they’d like.

Of those in the age group that did have jobs in 2012, 30% wanted to work more, according to authors David Blanchflower and fellow economist David Bell. They report that that standard unemployment figures - which have fallen overall in the past year - failed to give a proper picture of “labour market slack” in the economy.

In the whole UK workforce, the proportion of the workforce who were jobless or underemployed rose from 6.2% in 2008 to 9.9% in 2012, according to an index calculated by the researchers, while over the same period the unemployment rate rose from 5.8% to 8%.

Even if there were an upturn in demand, employers would be likely to extend the hours of existing workers before taking the risk of hiring new young employees.

 

So the overall picture is that total hours worked in the economy have increased since the start of the recession. But this conceals a fall in incomes, due to the use of cheaper part time contracts by employers.

So we have a two speed society amongst the under 30s. One group that thanks to modest family wealth, are enjoying a comfortable cruise through the recession. And a second much larger group who are facing a very uncertain future with low incomes and little prospect of achieving even the modest living standards that were accepted as normal in the west until the last few years.

So in different ways, both groups are remaining highly dependent on their parents and families well into their adult lives. But with growing job and income insecurity amongst the baby boomer parents, how long before even this fragile arrangement collapses?

The Terrifying Reality of Long -Term Unemployment in the US

By Matthew O'Brien

 

Close your eyes and picture the scariest thing you can think of. Maybe it's a giant spider or a giant Stay Puft marshmallow man or something that's not even giant at all. Well, whatever it is, I guarantee it's not nearly as scary as the real scariest thing in the world. That's long-term unemployment.

There are two labor markets nowadays. There's the market for people who have been out of work for less than six months, and the market for people who have been out of work longer. The former is working pretty normally, and the latter is horribly dysfunctional. That was the conclusion of recent research I highlighted a few months ago by Rand Ghayad, a visiting scholar at the Boston Fed and a PhD candidate in economics at Northeastern University, and William Dickens, a professor of economics at Northeastern University, that looked at Beveridge curves for different ages, industries, and education levels to see who the recovery is leaving behind.

Okay, so what is a Beveridge curve? Well, it just shows the relationship between job openings and unemployment. There should be a pretty stable relationship between the two, assuming the labor market isn't broken. The more openings there are, the less unemployment there should be. If that isn't true, if the Beveridge curve "shifts up" as more openings don't translate into less unemployment, then it might be a sign of "structural" unemployment. That is, the unemployed just might not have the right skills. Now, what Ghayad and Dickens found is that the Beveridge curves look normal across all ages, industries, and education levels, as long as you haven't been out of work for more than six months. But the curves shift up for everybody if you've been unemployed longer than six months. In other words, it doesn't matter whether you're young or old, a blue-collar or white-collar worker, or a high school or college grad; all that matters is how long you've been out of work.

Help Wanted - If You've Been Out of Work for Less than Six Months

But just how bad is it for the long-term unemployed? Ghayad ran a follow-up field experiment to find out. In a new working paper, he sent out 4800 fictitious resumes to 600 job openings, with 3600 of them for fake unemployed people. Among those 3600, he varied how long they'd been out of work, how often they'd switched jobs, and whether they had any industry experience. Everything else was kept constant. The mocked-up resumes were all male, all had randomly-selected (and racially ambiguous) names, and all had similar education backgrounds. The question was which of them would get callbacks. 

It turns out long-term unemployment is much scarier than you could possibly imagine. 

The results are equal parts unsurprising and terrifying. Employers prefer applicants who haven't been out of work for very long, applicants who have industry experience, and applicants who haven't moved between jobs that much. But how long you've been out of work trumps those other factors. As you can see in the chart below from Ghayad's paper, people with relevant experience (red) who had been out of work for six months or longer got called back less than people without relevant experience (blue) who'd been out of work shorter. 

Look at that again. As long as you've been out of work for less than six months, you can get called back even if you don't have experience. But after you've been out of work for six months, it doesn't matter what experience you have. Quite literally. There's only a 2.12 percentage point difference in callback rates for the long-term unemployed with or without industry experience. That's compared to a 7.13 and 8.95 percentage point difference for the short-and-medium-term unemployed. This is what screening out the long-term unemployed looks like. In other words, the first thing employers look at is how long you've been out of work, and that's the only thing they look at if it's been six months or longer.

This penalty for long-term unemployment is unlike any other. As you can see in the chart below, job churn is another red flag for employers, but not nearly to the same extent. Applicants who'd gone through five to six jobs but had relevant experience were still more likely to get called back than those who'd gone through three to four jobs but didn't. And they had about as good a chance as those who'd only held one or two jobs but weren't experienced. In other words, there is no job-switching cliff like there is an unemployment cliff.

Long-term unemployment is a terrifying trap. Once you've been out of work for six months, there's little you can do to find work. Employers put you at the back of the jobs line, regardless of how strong the rest of your resume is. After all, they usually don't even look at it. 

Let's be clear. Ghayad's field study shows employers discriminate against the long-term unemployed. All of the fake resumes he sent out were basically identical. But firms ignored the ones from people who'd been out of work for six months or longer -- even when they had better credentials. Employers look at how long you've been unemployed as a better proxy for skills than anything else on your resume. In other words, more jobs-training probably won't help the long-term unemployed all that much. Even a stronger economy will only help them years in the future, rather than many years in the future. 

It's time for the government to start hiring the long-term unemployed. Or, at the least, start giving employers tax incentives to hire the long-term unemployed. The worst possible outcome for all of us is if the long-term unemployed become unemployable. That would permanently reduce our productive capacity. 

We can do better, and we need to start doing so now. We can't afford long-term thinking in either the short or the long-term.

http://www.theatlantic.com/business/archive/2013/04/the-terrifying-reality-of-long-term-unemployment/274957/

US jobless claims rising again - March 2013 update

Here’s Steve Peasley’s latest update on US jobless figures for March. Whilst Steve’s focus is as an investor and trader, I think this perspective is still valuable to keep up us to speed on what is happening in the general economy and why.

The US weekly jobless claims spiked to 385,000 during the Easter week. This was a surprise for some commentators since the ‘usual’ level has been running at just below 350,000 on average. There’s an argument from some quarters that this spike was caused by the Easter Holiday weekend. I’m not too sure about this as I think worries in other areas of the world, especially Europe, inevitably have a significant bearing on US business.

Despite strong stock market performances over recent months, Steve is advising his clients to move out of equities and into cash, as he’s convinced a market correction must happen soon now, sending stocks crashing down. I agree with this assessment. Although there have been several encouraging signs of a slow US recovery, on the other hand, growth of the US economy is also dependant on markets outside of the US and in the wake of the Cyprus episode, confidence in the Eurozone is looking increasingly fragile.

Reviewing the financial press this week, my own view is that the question on many people’s minds now is that after Cyprus, where will the next European melt down happen and when? Slovenia is a very worrying case. It has an overextended banking sector at 144% of GDP ( Cyprus was 'only' around 85%) and its non-performing loans have reached 15% of total assets in the wake of a construction binge (hello Spain and Ireland)…

My thanks as always go to Steve for his concise and insightful commentary.

Cyprus exposes a fatal flaw in Eurozone and why Italy may be next to collapse

By Larry Elliott

Europe could have dealt with Cyprus cheaply and painlessly with a pan-European body able to recapitalise the country's banks.

It had all started to look quite promising. The US was picking up, China had avoided a hard landing and in Japan the early signs from the new government's anti-deflation approach were encouraging. Even in Britain, the first couple of months of 2013 provided some tentative hope – from the housing market and consumer spending, mainly – that the economy might escape another year of stagnation.

Then Cyprus came along. The last two weeks of March brought the crisis in the eurozone back into the spotlight, and by the end of the month the story was no longer rising share prices on Wall Street on the back of strong corporate profitability or the better prospects for Japanese growth. It was, simply, which country in the eurozone would be the next to require a bailout.

The past few days has seen what Nick Parsons, head of strategy at National Australia Bank, has called the "reverse Spartacus" effect after the scene at the end of Stanley Kubrick's epic in which captured slaves are offered clemency if they identify the rebel leader. All refuse.

European Central Bank, Frankfurt

In the aftermath of Cyprus, it has been a case of "I'm not Spartacus". Four members of the eurozone felt the need to issue statements explaining why they were different from the troubled island in the eastern Med. We now know that Portugal is not Spartacus, Greece is not Spartacus, Malta is not Spartacus and Luxembourg, which has the highest ratio of bank deposits to GDP in the eurozone, is not Spartacus. As Parsons noted wryly, Italy was unable to say it was not Spartacus because it still doesn't have a government to speak on its behalf. Otherwise it would probably have done so.

Few of the independent voices in the financial markets take such attempts at reassurance seriously. Another crisis in the eurozone could be avoided, but only if those in charge (sic) act more speedily and effectively than they have in the past. As things stand, another outbreak of trouble looks inevitable.

Cyprus has enough money to get by for a couple of months, but by then will be feeling the impact of a slow-motion bank run as depositors remove their money at the rate of €300 (£250) a day. The economy has been crippled by the terms of the bailout, a Carthaginian peace if ever there was one, and the country's debt ratio is bound to explode.

Investors are already casting a wary eye over Malta, which appears to have been the short-term beneficiary of capital flight from Cyprus, but the bookies favourite for the next country to need a bailout is Slovenia, where the government is already making contingency plans for coping with bank losses.

By focusing on the eurozone's minnows, the markets are in danger of overlooking a much bigger potential problem. If attempts to put together a new government in Rome fail, Italy will be facing a second general election and in such a scenario opinion polls currently put Silvio Berlusconi ahead.

It is not hard to sketch out a sequence of events in which Berlusconi completes a political comeback, the markets take fright, Italian bond yields go through the roof, the European Central Bank (ECB) under Mario Draghi says it will only buy Italian debt if Berlusconi agrees to a package of austerity and structural reforms, the new government refuses and then calls a referendum on Italy's membership of the single currency. Italy has already had six consecutive quarters of falling GDP and is on course for a seventh, making the recession the longest since modern records began in 1960. So when Berlusconi says he cannot let the country fall into a "recessive spiral without end", he strikes a chord.

If policymakers are alive to the threat posed by one of the six founder members of the European Economic Community back in 1957, they have yet to show it. The assumptions seem to be that Cyprus is exceptional, that the ECB will ride to the rescue if it proves not to be, and that Europe will be dragged out of the danger zone by the pick-up in the rest of the global economy.

This is the height of foolishness. The factors causing the crisis in Cyprus are replicated in many other member states. The ECB's "big bazooka" – buying the bonds of struggling governments without limit – has yet to be tested, and because Europe is the world's biggest market, the likelihood is that the re-emergence of the sovereign debt crisis will seriously impair growth prospects in North America and Asia.

Economists at Fathom Consulting draw a comparison between the eurozone today and the UK at the very start of the financial crisis. Mistakes were made with the handling of Northern Rock because of fears that a bailout would create problems of moral hazard – in other words helping a bank that had got itself into trouble through its own stupidity would encourage bad behaviour by others. The systemic risks were not recognised, with disastrous consequences.

Similarly, the eurozone has not understood the systemic potential of the current crisis, Fathom argues, not least the "doom loop" between fragile banks and indebted governments. Austerity is making matters worse because cuts to public spending and higher taxes hit economic activity by more than they reduce government deficits. Public debt as a share of national incomes goes up, not down.

Austerity can work, but conditions have to be right for it. It helps if a country's trading partners are growing robustly, because then the squeeze on domestic demand can be offset by rising exports. It helps if the central bank can compensate for tighter fiscal policy by easing monetary policy, either through lower interest rates or through unconventional measures such as quantitative easing (QE). And it helps if the exchange rate can fall. Not one of these conditions applies in the eurozone, which is why the fiscal multipliers – the impact of tax and spending policies on growth – are so high. Put bluntly, removing one euro of demand through austerity leads to the loss of more than one euro in GDP.

So what should be done? Clearly, the self-defeating nature of current policy needs to be recognised. Countries need to be given more time to put their public finances in order. The emphasis should be shifted from headline budget deficits to structural deficits so that some account is taken of the state of the economic cycle, and the ECB needs to be ready with its own version of QE.

Simultaneously, work needs to speed up on creating a banking and fiscal union. Europe could have dealt with Cyprus cheaply and painlessly had there been a pan-European body capable of recapitalising the country's banks. Delay in setting up such a body threatens to be costly.

Finally, the eurozone needs to start talking with one voice. A bit of "I'm Spartacus" would not go amiss.


http://www.guardian.co.uk/business/economics-blog/2013/apr/01/eurozone-crisis-banking-fiscal-union

Jim Rogers - why farmers will be driving Lamborghinis

By Neil Patrick

I have talked elsewhere on this blog and Twitter about the likely meltdown of the global economy. I hate to be alarmist or sensational, but the more I look at the numbers, the more convinced I am that no other outcome is ultimately now possible.

In Europe this week, the situation in Cyprus is in my view a foretaste of the type of events that will spread across the western economies in the coming months and years. The inability of politicians to find a solution is now beyond doubt I think.

If you've worked hard, saved and invested your money all your life, you are about to be punished very severely for this as the citizens of Greece, Spain and Cyprus have recently discovered. In fact it’s already happening by stealth means as low interest rates, inflation, stagnant earnings and rising taxes combine to extract wealth from the middle classes to pay for unsustainable government spending and bank bailout programmes.

Here noted investor, free market advocate, and author Jim Rogers gives an interview with Glenn Beck. He asks whether the latest State of the Union address makes you wonder whether President Barack Obama is "delusional" or just a good liar? It’s a good question, but I think the answer doesn't really matter. What matters is understanding what is coming and how we can prepare ourselves.

So what can we do about this at a personal level? Well an MBA is possibly the most redundant qualification in the US right now says Jim. On the other hand, as food supplies become more and more critical, farming will become more valuable than ever, ‘the farmers will be driving Lamborghinis!’ says Jim.

This isn't enjoyable to watch, but I’d rather know about the looming threats than stumble blindly into them. My thanks go to Glen Beck and Jim Rogers for their insights.

US economy – what on earth IS going on?

I’m delighted as usual to share Steve Peasley’s weekly analysis of the economic news. There are some really contradictory signals  coming out of the US economic data right now. Are we seeing green shoots of recovery? Are we overdue for a stock market correction? Why is the US dollar strengthening against other currencies? Is the creation of new jobs sustainable?  This is Steve’s take on it.

Economic numbers were quite good this week and this supported the market as it went higher. The US economy is gathering a little strength with unemployment claims dropping again. With jobs being produced, this created some underlying support for the stock market.

Remember though that bond and other asset yields remain at all time lows globally and so there are piles of money looking for places to go and if stocks can show even a short term return, that’s where this money will go. This is my view about what is artificially creating stock price growth, rather than any great optimism about long term returns or outlooks. So I completely agree with Steve that we are overdue now for a stock market correction.

Confusingly, the US Dollar is getting stronger while the stock market is going up. This is exceptionally unusual. Usually the stock market goes up when the US Dollar gets weaker. One main reason is that other economies worldwide are not keeping up with or not as good as the US. The US economy may not be that great, but it is way better than the majority.

My thanks as always to  Steve for his excellent  insight and analysis.

Mechanics of a meltdown in European jobs

If you visit my site often, you’ll know that I think monitoring the economic situation is important. I could just post endless job hunting tips and news about job opportunities, but today the big picture is just so critical that I feel I must share this news too.

I’ve already posted about how and why I think that the Eurozone is approaching meltdown, and why the politicians will be ineffectual in reversing this decline. You may be doubtful of my analysis and I certainly hope it is wrong. So I have been looking for more data and insight into this topic and today I have decided to share with you a film that documents the severity of the situation in the Eurozone.

I was in two minds as to whether to post this - it certainly won’t provide an uplifting experience for anyone that views it (yep, that’s my health warning). But if you do want to know the real mechanics of what’s going on, this film has more data and insight than any news report or economics article I have seen. It’s heavy on stats – but excellently presented in an easily digestible form and thankfully devoid of rhetoric, opinion and political bias. So you are free to form your own judgement based on the data provided here.

From my perspective, the debt burdens in Europe (just as in the US) are unsustainable now. This means that the breakup or at least redefinition of the Eurozone will happen, it’s just a question of when. If the Euro survives in its current form beyond the next two years, I will be completely amazed. So the jobs outlook in Europe is looking increasingly bleak, but nonetheless bleaker in some places than others.

As I said at the start, I was in two minds about sharing this. On reflection overnight though I decided to go ahead because knowledge of what is happening and sharing this is vital I think. Whilst the prognosis isn’t good, I think understanding what is happening, where and how will enable you to make better personal decisions than if you didn’t have this knowledge.

If you’d prefer it if I stuck to the narrow path on this blog, please let me know!

PS I suggest you grab a coffee (or something stronger) before watching this.

My thanks and appreciation go to Stefan Molyneux and Freedomainradio.com for the production.